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AP Microeconomics

Subjects : economics, ap
Instructions:
  • Answer 50 questions in 15 minutes.
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  • Match each statement with the correct term.
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This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. Another way of saying that firms are earning zero economic profits or a fair rate of return on invested resources






2. A firm that has market power in the factor market (a wage-setter)






3. Costs that do not vary with changes in short-run output. They must be paid even when output is zero.






4. AVC = TVC/Q






5. Two goods are consumer substitutes if they provide essentially the same utility to consumers






6. A very diverse market structure characterized by a small number of interdependent large firms - producing a standardized or differentiated product in a market with a barrier to entry






7. Production of maximum output for a given level of technology and resources. All points on the PPF are productively efficient






8. The output where AVC is minimized. If the price falls below this point - the firm chooses to shut down or produce zero units in the short run






9. The more of a good that is produced - the greater the opportunity cost of producing the next unit of that good






10. Ed = 8 - infinite change in demand to price change






11. Production inputs that the firm can adjust in the short run to meet changes in demand for their output. Often this is labor and/or raw materials






12. The mechanism for combining production resources - with existing technology - into finished goods and services






13. The change in quantity demanded that results from a change in the consumer's purchasing power (or real income)






14. Entry (or exit) of firms does not shift the cost curves of firms in the industry






15. Consumer income - prices of substitute and complementary goods - consumer tastes and preferences - consumer speculation - and number of buyers in the market all influence demand






16. Costs that change with the level of output. If output is zero - so are TVCs.






17. Occurs when an economy's production possibilities increase. This can be a result of more resources - better resources - or improvements in technology.






18. Additional benefits to society not captured by the market demand curve from the production of a good - result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good






19. The upward part of the LRAC curve where LRAC rises as plant size increases. This is usually the result of the increased difficulty of managing larger firms - which results in lost efficiency and rising per unit costs.






20. Pmc < MR = MC and Pmc > minimum ATC so outcome is not efficient - but profit = 0.






21. Pm > MR = MC - which is not allocatively efficient and dead weight loss exists. Pm > ATC - which is not productively efficient. Profit > 0 so consumer surplus is transferred to the monopolist as profit






22. Costs of inputs - technology and productivity - taxes/subsidies - producer speculation - price of other goods that could be produced - and number of sellers all influence supply






23. The imbalance between limited productive resources and unlimited human wants






24. The philosophy that a citizen should receive a share of economic resources proportional to the marginal revenue product of his or her productivity






25. Occurs when LRAC is constant over a variety of plant sizes






26. Characterized by many small price-taking firms producing a standardized product in an industry in which there are no barriers to entry or exit






27. Entry of new firms shifts the cost curves for all firms downward






28. A good for which higher income increases demand






29. Production of the combination of goods and services that provides the most net benefit to society. The optimal quantity of a good is achieved when the MB = MC of the next unit and only occurs at one point on the PPF






30. The case where economies of scale are so extensive that it is less costly for one firm to supply the entire range of demand






31. The number of units of any other good Y that must be sacrificed to acquire good X. Only relative prices matter






32. Exists when the production of a good imposes disutility upon third parties not directly involved in the consumption or production of the good






33. Ed = 1






34. A period of time too short to change the size of the plant - but many other - more variable resources can be changed to meet demand






35. The lost net benefit to society caused by a movement away from the competitive market equilibrium






36. Two goods are consumer complements if they provide more utility when consumed together than when consumed separately






37. Models where firms agree to mutually improve their situation






38. MUx / Px = MUy/Py or MUx/MUy = Px/Py






39. Exists if a producer can produce more of a good than all other producers






40. The total quantity - or total output of a good produced at each quantity of labor employed






41. The additional cost incurred from the consumption of the next unit of a good or a service






42. A market structure characterized by a few small firms producing a differentiated product with easy entry into the market






43. A legal minimum price below which the product cannot be sold. If a floor is installed at some level above the equilibrium price - it creates a permanent surplus






44. Excess supply; exists at a market price when the quantity supplied exceeds the quantity demanded.






45. Total revenue rises with a price increase if demand is price inelastic and falls with a price increase if demand is price elastic






46. The least competitive market structure - characterized by a single producer - with no close substitutes - barriers to entry - and price making power






47. AFC = TFC/Q






48. A per unit tax on production results in a vertical shift in the supply curve by the amount of the tax






49. The marginal utility from consumption of more and more of that item falls over time






50. All firms maximize profit by producing where MR = MC







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